Debt-Free Higher Education - Is Oregon onto something?

  • maxferguson

    Posts: 321

    Jul 04, 2013 5:51 AM GMT
    A friend posted this on Facebook today and I found it rather intriguing. While no country is without it's problems, in the U.S., social security I would say is the number problem that needs to be dealt with. The next biggest problem (in my opinion) is student debt. While the level of student debt is now higher than the total credit card debt in the U.S. (eek!), I think the really big problem is that those loans cannot be wiped out if the individual files for personal bankruptcy.

    Normally, after you file, you start with a clean slate (ex your credit history....), and in this case, if you could wipe out student loans, you still have your education. Your education cannot be repossessed by creditors. But, since these debts cannot be wiped out, you emerge from bankruptcy with your education and the same debt that put you in bankruptcy to begin with. Rinse and repeat.

    Anyhow, Oregon seems have come up with an interesting idea to address to this problem. While I'm not sure of the fine details, the idea is that you don't have to pay for tuition *up front*, but you owe a certain % of your income over the 20 year period after you graduate (3% for a 4 yr degree). Presumably, if you chose to make some portion of the payments up front, you would owe a lower % of your future income.

    For example, if you make $35K out of school and your income grows at 4% per year on average over the next 20 years(and you paid $0 in tuition while you were in school), the undiscounted cash flows over the 20 years amount to ~$31,266, and the real cash flows (at ~2.5%) in 2013 dollars are $23,600. Currently, average student debt load (in 2013 dollars) is $25,000. Net and net, the real cash flows aren't materially different, but this Oregon plan seems to have struck a balance between the students footing the bill entirely (in aggregate... some will pay more, some less) while preventing them from being thrown onto the debt treadmill immediately after you taking the first few steps of their careers. That, and there's no real way to cheat the system. If you want to pay less for your education, you have to earn less... The only thing that might have to change are more stringent entrance requirements to filter out those who are confident in their ability to make use of their education and those who aren't, seeing as the price of a degree is the same for both people.

    I think there's a strong case to be made for increased access to higher education for those who cannot afford it and are capable of a bright future, especially if they are bearing the full cost anyway. Surely no nation was ever worse off by being better educated across the board. Surely a possible increase in engineering, medical and science professionals could not slow a nation's growth and development. I don't care for the argument that "it will reduce the competitiveness of my degree." It's selfish and lazy. Yes, the competitiveness of your degree will certainly drop, but any free market proponent will surely tell you that increased competition forces innovation. You earned a degree and to expect it to remain competitive is to expect nobody to run past you while your walking.

    In the end, it is not free tuition - the student pays out of their future income. The only difference is they're not being choked off by a fixed payment liability (which is what is protecting those with degrees from having to compete harder to maintain their effectiveness).

    Do any other states do this? Here's a link to the bill:
    http://oregonwfp.org/issues/debt-free-higher-education/
  • maxferguson

    Posts: 321

    Jul 04, 2013 6:06 AM GMT
    Furthermore, I think the name "pay it forward" might be misleading. One generation/graduating class does not fund the degree of the next because the next generation is not guaranteed to earn a degree, and thus incur any liabilities. Social security has current workers funding current retirees, which creates a problem if there is a mismatch between contributors and beneficiaries. Here, the student benefits immediately through education and pays a flat % of their *own* income.
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    Jul 04, 2013 12:23 PM GMT
    I think the idea is interesting - though I don't think implementation should be within the state. The funding and provision of education should come from separate institutions just to ensure accountability but it would be interesting if the universities themselves offered some type of discount in exchange for a salary residual over time.

    For instance, not all degrees are created the same. Gender studies, law versus the STEM type degrees have varying levels of demand. A funding model that doesn't account for this effectively creates freeloaders who want degrees that society doesn't value. American education is far more expensive than it should be in large part because of cheap money for this blanket category of "education".

    On the other hand, institutions themselves should have the greatest stake in ensuring the education they provide has real tangible value to employers/society - and a residual would give them the incentive to do this.
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    Jul 05, 2013 11:42 AM GMT
    AlSharpton said
    riddler78 saidI think the idea is interesting - though I don't think implementation should be within the state. The funding and provision of education should come from separate institutions just to ensure accountability but it would be interesting if the universities themselves offered some type of discount in exchange for a salary residual over time.

    For instance, not all degrees are created the same. Gender studies, law versus the STEM type degrees have varying levels of demand. A funding model that doesn't account for this effectively creates freeloaders who want degrees that society doesn't value. American education is far more expensive than it should be in large part because of cheap money for this blanket category of "education".

    On the other hand, institutions themselves should have the greatest stake in ensuring the education they provide has real tangible value to employers/society - and a residual would give them the incentive to do this.


    I partially disagree with you.
    The discount can potentially cause problems with undervalued and underpaid workers. Add ontop of this new grads being underpaid workers then you would have a system of semi-slavery.

    All degrees are the same. The difference between the degrees lie in the competition, rigorousity and real-world applications of the course work, not societies personal value system. It is not up to you to decide what is what is not useful in society. Outdated? Yes. Inapplicable? Maybe. But the humanities are far from unuseful. Now because you have not actually taken a humanities course, you perceive it as a freeloaders work.
    I have been in a few "freeloaders" humanities AND science classes. But I have been in quite a few humanities courses that needed me to utilize rote-memorization of pages of information, critical-analysis thinking and modern day applications.

    The educational system today is expensive because of all of the students who not only are entering in mass numbers but of many who do not successfully finish a degree program.


    I change my mind, I don't agree with you. Your solutions lead not only to an overstaturated economy full of similiar workers, but it leads to an undervalued one.
    This was the most biased thing Ive seen you type.


    I've not said that I should decide what degrees should be important - nor would I ever want to. I've also not said that all humanities are not useful (I don't have a STEM degree). Yes, I agree it all depends on what you do with it, and how you apply it but there's a reason why some degrees earn more than others on average - it's a direct reflection of the value society places on them.

    There are certainly outliers. One of the founders of Facebook Chris Hughes has a Bachelors of Arts in history and literature but this is radically different than what the median or average income of most who have similar degrees.

    It has always been the case that that only a fraction of those who enter a degree actually finish. And while there are probably a few factors of why the cost of education has risen far faster than inflation, this definitely isn't one of them.

    Your last comment of "Your solutions lead not only to an overstaturated economy full of similiar workers, but it leads to an undervalued one" completely misunderstands my point. I think the better solution is for educational institutions to find better ways of delivering education so that the transition between STEM and humanities for those who have the acumen to do so, isn't nearly so dramatic. They need to do so cheaper and they need to do so faster with greater accountability.

    To use cheap money to subsidize education and assume that all education is the same is regressive and also counter productive as it's just one of the big reasons the cost of higher education has risen so quickly.
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    Jul 07, 2013 8:55 PM GMT
    More here:
    http://techcrunch.com/2013/07/07/move-over-peter-thiel-oregon-proposes-investment-model-for-student-loans/
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    Jul 11, 2013 11:07 AM GMT
    "Tamanaha: The Problems With Income Based Repayment" - pretty much also stating my issues - that if there isn't a accountability and market signals in what disciplines students take, it further distorts the incentives for students to take disciplines that will have little return like law at the moment.

    http://taxprof.typepad.com/taxprof_blog/2013/07/yamanaha-the-problems.html
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    Jul 11, 2013 10:17 PM GMT
    Sharpton said
    riddler78 said"Tamanaha: The Problems With Income Based Repayment" - pretty much also stating my issues - that if there isn't a accountability and market signals in what disciplines students take, it further distorts the incentives for students to take disciplines that will have little return like law at the moment.

    http://taxprof.typepad.com/taxprof_blog/2013/07/yamanaha-the-problems.html


    Law?
    So how do we know that business and education won't join law and the humanities?


    We don't. That's the point. No single individual or group should choose and make that choice for others but instead students should be responding themselves to the cost of the education versus the value they'll get. A large part of that value is in the incomes they'll get after which reflects what society deems are important/less important degrees.
  • The_Guruburu

    Posts: 895

    Jul 11, 2013 10:20 PM GMT
    This is a really interesting idea. I can't wait to see how Oregon handles this a few years into the program.
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    Jul 11, 2013 10:40 PM GMT
    Sharpton said
    riddler78 said
    Sharpton said
    riddler78 said"Tamanaha: The Problems With Income Based Repayment" - pretty much also stating my issues - that if there isn't a accountability and market signals in what disciplines students take, it further distorts the incentives for students to take disciplines that will have little return like law at the moment.

    http://taxprof.typepad.com/taxprof_blog/2013/07/yamanaha-the-problems.html


    Law?
    So how do we know that business and education won't join law and the humanities?


    We don't. That's the point. No single individual or group should choose and make that choice for others but instead students should be responding themselves to the cost of the education versus the value they'll get. A large part of that value is in the incomes they'll get after which reflects what society deems are important/less important degrees.


    Im not entirely sure but I have a feeling this isn't a real answer.


    Any alternatives? When you subsidize degrees that society isn't willing to pay for, why should taxpayers?
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    Jul 11, 2013 11:00 PM GMT
    Sharpton said
    riddler78 said
    Sharpton said
    riddler78 said
    Sharpton said
    riddler78 said"Tamanaha: The Problems With Income Based Repayment" - pretty much also stating my issues - that if there isn't a accountability and market signals in what disciplines students take, it further distorts the incentives for students to take disciplines that will have little return like law at the moment.

    http://taxprof.typepad.com/taxprof_blog/2013/07/yamanaha-the-problems.html


    Law?
    So how do we know that business and education won't join law and the humanities?


    We don't. That's the point. No single individual or group should choose and make that choice for others but instead students should be responding themselves to the cost of the education versus the value they'll get. A large part of that value is in the incomes they'll get after which reflects what society deems are important/less important degrees.


    Im not entirely sure but I have a feeling this isn't a real answer.


    Any alternatives? When you subsidize degrees that society isn't willing to pay for, why should taxpayers?


    Taxpayers should value that someone has studied diligently in a coursework and is ready to put 110% effort for the good of society.
    And I'll bet those same taxpayers will be giving tons of lip if we have too many engineers or people becoming less skilled/less passionate engineers just for the money.


    No, society should reward for results not efforts - that's what's happening now. Society shouldn't subsidize someone's personal preferences as harsh as that sounds